Warranty Protection Insurance , or CPI , guarantees property owned as collateral for loans made by lending institutions. The CPI, also known as forced placement insurance and lenders placed, can be classified as single interest insurance if it protects the lender's interest, one party, or as a double interest insurance if it protects the interests of both companies. lenders and borrowers.
After signing the loan agreement, the borrower usually agrees to buy and maintain the insurance (which should include comprehensive coverage and collisions for cars, and hazards, floods, and wind coverage for homes), and lists of lending institutions as lienholders. If the borrower fails to purchase such coverage, the lender is left vulnerable to losses, and the lender switches to the CPI provider to protect its interests against loss.
The lender buys CPI to manage their risk of loss by transferring the risk to the insurance company. Unlike other forms of insurance available to lenders, such as blanket insurance that affects borrowers who have purchased insurance, the CPI only affects borrowers who have no insurance or collateral owned by creditors, such as car repossession and home foreclosures.
Moreover, depending on the CPI policy structure chosen by the lender, the non-insured borrower can also be protected in several ways. For example, a policy may specify that if the collateral is damaged, it can be repaired and retained by the borrower. If a damaged guarantee is repaired, the insurance CPI may repay the loan.
Video Collateral protection insurance
How CPI works
When a borrower issues a loan for a home or a vehicle at a lending institution, he signs an agreement to maintain a two-liability insurance, to protect both the borrower and the lender with comprehensive coverage and collision on the vehicle or hazard, wind and flood at home throughout the loan term. The borrower provides insurance evidence to the creditor, verified by the CPI provider, who also acts on behalf of the lender as an insurance tracking company.
If proof of insurance is not accepted by the CPI provider, a notice is sent to the borrower on behalf of the lender, who asks them to obtain the required coverage. If the response to a notification is not received, the lender may choose to have "forced-placed" CPI coverage on the borrower's loan to protect his interests from damage or loss, leaving the borrower empty-handed.
Lending institutions provide premium costs to borrowers by adding premiums to the principal and increasing loan payments. If the borrower then provides proof of insurance, the refund is issued, otherwise the premium is rolled into the loan.
During the loan period, the CPI provider monitors insurance proofs to ensure that the policy remains in effect. If the policy is stuck, the notification is sent according to the procedure described above, and the CPI backwards to fill the coverage gap.
Maps Collateral protection insurance
Past issues
Interest in insurance collateral protection increased in the late 1980s when, in response to the bank crisis, the regulator recommended that the assets that get the loan insured and, if the borrower did not get insurance, the lender got the CPI. The increase in CPI activity generated by these recommendations also coincides with a number of consumer complaints, including claims from borrowers.
A borrower's litigation is often demanded by lenders' giving inadequate disclosures about the right to force-placing CPI policies, forcing-placing policies with unnecessary coverage, and not disclosing they might make commissions on transactions. In addition, some CPI providers have administrative problems with their programs, including inability to receive and process insurance documents in a timely manner and ineffective tracking technology, and the inability of some providers to reamortize loan payments that result in CPI premium accumulation. These problems result in unnecessary mailing of letters to borrowers, issuing policies to truly insured borrowers, and delays in processing premium refunds when proof of insurance is received, all of which serve to aggravate borrower's complaints.
Current market and status response
In the automotive IHK, lenders are increasing their contract language to address existing disclosure issues in the past. In addition, the practices and technologies supporting the CPI automotive market have grown since the 1980s. Today, leading automotive CPI providers provide online tracking systems that are updated in real-time and used by providers, borrowers, and lenders to communicate and coordinate on insurance-related issues. Car CPI providers have also implemented electronic data interchange (EDI) with private borrower insurance operators to maintain up-to-date information on insurance required.
Due to improvements made in the automobile CPI administration, interest in auto insurance CPI increased again in the early 2000s to the present day. In addition, the driving factor behind the growth of the automotive CPI market is in longer loan terms and higher financing amounts. For example, by 2014 the average length of new car loans has reached 66 months, and the average amount financed for new vehicles is $ 27,612, up $ 964 from 2013. The longer the loan period and the higher the amount financed, the more it may be that the borrower will be in a negative-equity, or "upside down," situation. Inverted borrowers are also more likely to fail in loan payments, resulting in more withdrawals for lenders who then have to deal with uninsured damage to the foreclosed vehicles.
The contribution of mortgage protection insurance
Insurance Protection Collateral on mortgage property, otherwise known as Mortgage Protection Insurance (MPI) has been examined in the United States. After the 2007-2008 financial crisis and the increase in foreclosures, lenders buying "forced" or "lender" insurance became more prominent. Controversy has arisen over the price of this insurance, as well as the difference in the ratio of losses, agency costs, and relationships between banking institutions and insurance companies, resulting in the investigation of regulations and settlement in New York state in 2013, eventually including both Assurant and QBE, the same accounted for 90% of the market. Borrowers who fail, or in many cases mortgage owners like Fannie Mae or Freddie Mac, end up paying for the insurance.
In March 2013, the FHFA (which has a conservatory over Fannie and Freddie) proposed not to allow commission payments by insurance companies to banks that serve their mortgages, and in November 2013, the FHFA banned the practice, calling it a "kickback culture".
The Consumer Financial Protection Bureau (CFPB), New York's Financial Services Department (NY DFS), continues to examine Additional Protection Insurance. FHFA, CFPB, and the above mentioned countries are reviewing and making changes to the Insurance Loss Protection program and regulations (MPI).
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Source of the article : Wikipedia
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